28 Key Highlights 2019 29 Overview 29 C&M Industry Market Performance 33 C&M Industry Financial Performance 34 Telecommunications Sector 40 Broadcasting Sector 41 Postal and Courier Sector 42 ACE Market Overview and Performance

This chapter reports on the economic performance of the C&M industry, mainly on the market capitalisation including Bursa market capitalisation by sector; telecommunications, broadcasting, postal and courier. This chapter also analyses the financial performance including industry revenue by sector, capital expenditure and ARPU. In addition, it also provides an overview and performance of the ACE Market.

KEY HIGHLIGHTS 2019

28 INDUSTRY PERFORMANCE REPORT 2019

OVERVIEW

DOMESTIC GROWTH The C&M industry market capitalisation remained resilient despite the external headwinds and global SOFTENED IN 2019, WITH economic uncertainties and continued to play a vital role in contributing to the domestic economy. MIXED PERFORMANCES Sector-wide cost rationalisation continues to ACROSS COMMUNICATIONS be at the forefront of the C&M industry players’ initiatives against the persistent and increasing stiff AND MULTIMEDIA (C&M) competitiveness in the market. INDUSTRY

C&M INDUSTRY MARKET PERFORMANCE

The C&M industry represents 8.4% or RM144.01 billion of total market capitalisation of RM1,711.84 billion as at end 2019 (2018: 8.1% C&M Industry or RM137.73 billion). The C&M industry market capitalisation has increased by 4.6%, spurred Market Capitalisation by telecommunications sector. This is due to RM144.01 telecommunication companies’ share prices gaining billion 4.6% momentum, driven by corporate announcements (2018: RM137.73 billion) such as 5G initiatives, new product launch, collaborations and financial results.

C&M INDUSTRY MARKET CAPITALISATION BY SECTOR 2017 – 2019

Source: Bloomberg, MCMC Figure 2.1 C&M Industry Market Capitalisation by Sector 2017 – 2019

29 C&M COMPANIES’ CONTRIBUTION TO BURSA MALAYSIA 2019

Source: Bloomberg, MCMC Figure 2.2 C&M Companies Contribution to Bursa Malaysia 2019

C&M COMPANIES MARKET CAPITALISATION 2017 – 2019

Company Market Capitalisation (RM billion) Change (%) 2019 2018 2017 2019-2018 2018-2017 Maxis 41.61 41.82 46.94 -0.5% -10.9% 37.94 35.65 49.67 6.4% -28.2% Digi 34.68 34.99 39.65 -0.9% -11.8% TM 14.38 10.00 23.67 43.8% -57.8% TIME 5.40 4.73 5.29 14.2% -10.6% Telecommunications 134.01 127.19 165.22 5.4% -23.0%

ASTRO 6.62 6.78 13.82 -2.4% -50.9% Media Prima 0.31 0.38 0.84 -18.4% -54.8% Star Media 0.36 0.51 1.22 -29.4% -58.2% Broadcasting 7.29 7.67 15.88 -5.0% -51.7%

Pos Malaysia 1.16 1.35 4.11 -14.1% -67.2% GDEX 1.52 1.48 3.37 2.7% -56.1% Nationwide Express 0.03 0.04 0.07 -25.0% -42.9% Postal and Courier 2.71 2.87 7.55 -5.6% -62.0% TOTAL C&M 144.01 137.73 188.65 4.6% -27.0%

Note: Axiata Group Bhd (Axiata), Maxis Bhd (Maxis), Digi.Com Bhd (Digi), Bhd (TM), TIME dotCom Bhd (TIME), Malaysia Holdings Bhd (ASTRO), Media Prima Bhd (Media Prima), Star Media Group Bhd (Star Media), Pos Malaysia Bhd (Pos Malaysia), GD Express Carrier Bhd (GDEX) and Nationwide Express Holdings Bhd (Nationwide Express)

Source: Bloomberg, MCMC Figure 2.3 C&M Companies Market Capitalisation 2017 – 2019

30 INDUSTRY PERFORMANCE REPORT 2019

The market capitalisation for the telecommunications sector has improved by 5.4% to RM134.01 billion in 2019 (2018: RM127.19 billion):

The top performer was TM, Axiata market capitalisation registering the sharpest grew 6.4% to RM37.94 billion growth compared to TIME market capitalisation in 2019 (2018: RM35.65 its peers, with market gained 14.2% to RM5.4 billion), spurred by investors capitalisation improving by billion in 2019 (2018: RM4.73 sentiment due to the 43.8% to RM14.38 billion in billion), due to its sustained group’s efforts to maintain 2019 (2018: RM10 billion). growth momentum, profitability. Additionally, TM performance was driven subsequently achieving a their regional exposures by improved profitability robust financial profile with a focus on emerging as a result of ongoing cost countries contributes to optimisation initiatives long-term growth potential

In contrast, the broadcasting sector posted a decline in market capitalisation by 5% to RM7.29 billion in 2019 (2018: RM7.67 billion). The decline is mainly due to the competitive market in the digital era. The rise in digital and streaming media resulted in the rapid shift of consumer preference for OTT platform.

Similarly, postal and courier sector market capitalisation also posted a decline of 5.6% to RM2.71 billion in 2019 (2018: RM2.87 billion). Service providers are facing challenges in a very competitive market despite the rapidly growing e-commerce parcel market. They are embracing digital solutions to their business and operations in order to sustain and remain competitive.

31 MAXIS AND AXIATA REMAIN ON TOP 10 MARKET CAPITALISATION

As shown in Figure 2.4, while the financial and utilities sectors continue to lead the market capitalisation ranking, the telecommunications sector is led by Maxis and Axiata. In 2019, Maxis maintained its position at 7th place as in 2018, while Axiata has moved two notch up to 8th place.

TOP 10 MARKET CAPITALISATION 2018 – 2019

2019 Ranking 2018

MAYBANK RM 1 RM RM97.13 billion RM104.83 billion

PUBLIC BANK PUBLIC BANK 2 RM RM75.47 billion RM RM96.12 billion

TNB TNB 3 RM75.41 billion RM77.34 billion

PETRONAS CHEMICALS CHEMICALS 4 RM58.80 billion RM74.32 billion

CIMB CIMB 5 RM RM51.10 billion RM RM54.61 billion

IHH HEALTHCARE IHH HEALTHCARE 6 RM47.99 billion RM47.27 billion

MAXIS MAXIS 7 RM41.61 billion RM41.82 billion

AXIATA 8 RM37.94 billion RM RM41.73 billion

SIME DARBY PLANTATION PETRONAS GAS 9 RM37.52 billion RM37.99 billion

HONG LEONG BANK AXIATA 10 RM RM37.50 billion RM35.65 billion

*As at 31 December Note: 1. Top 10 largest stocks were from the largest 30 companies on FTSE Bursa Malaysia KLCI Index by market capitalisation 2. Malayan Banking Bhd (Maybank), Public Bank Bhd (Public Bank), Bhd (TNB), Petronas Chemicals Group Bhd (Petronas Chemicals), CIMB Group Holdings Bhd (CIMB), IHH Healthcare Bhd (IHH Healthcare), Maxis Bhd (Maxis), Axiata Group Bhd (Axiata), Plantation Bhd (Sime Darby Plantation), Hong Leong Bank Bhd (Hong Leong Bank)

Source: Bloomberg, MCMC Figure 2.4 Top 10 Market Capitalisation 2018 – 2019

32 INDUSTRY PERFORMANCE REPORT 2019

C&M INDUSTRY FINANCIAL PERFORMANCE

The domestic C&M industry aggregate revenue was RM C&M Industry Revenue at RM43.37 billion in 2019. This is a decline of 3.7% RM43.37 from RM45.02 billion in 2018. billion 3.7% (2018: RM45.02 billion)

DOMESTIC C&M INDUSTRY REVENUE 2017 – 2019

Note: Revenue from major public listed companies only

Source: Industry, MCMC Figure 2.5 Domestic C&M Industry Revenue 2017 – 2019

By sector, telecommunications sector recorded contribution from advertising revenue and Pay TV RM34.8 billion revenue in 2019. This is a decline subscription revenue, mainly caused by consumers of 2.8% (2018: RM35.8 billion), due to intense shifting to digital media and OTT services. competition coupled with OTT services eroding traditional revenues. Meanwhile, postal and courier sector revenue was at RM2.69 billion in 2019, declined by 3.6% compared On the broadcasting front, the sector revenue with RM2.79 billion in 2018. The sector revenue was decreased by 8.6% to RM5.88 billion in 2019 (2018: lower as mail business continues to decline and RM6.43 billion). The decline was due to lower intense competition in the courier segment.

33 TELECOMMUNICATIONS SECTOR

In 2019, telecommunications sector revenue recorded RM34.8 billion, with mobile service providers contributed a huge chunk equivalent to 64% of the total telecommunications revenue. The remaining 36% was generated by fixed service providers.

Mobile service providers (, Maxis and Digi) collectively recorded a decline of 3.2% in revenue to RM22.26 billion in 2019 (2018: RM23 billion). This is due to the decrease in legacy voice and SMS revenue. Traditional services revenue (voice and SMS) declined more than 60% for the past 10 years from RM16 billion in 2008 to RM5 billion in 20191.

As for fixed service providers (TM and TIME), their revenue declined 2% to RM12.54 billion in 2019 (2018: RM12.8 billion). This was due to lower revenue contribution from TM, on the back of declining voice services revenue and subscriber base.

TELECOMMUNICATIONS SECTOR REVENUE 2017 – 2019

Source: Industry, MCMC Figure 2.6 Telecommunications Sector Revenue 2017 – 2019

1 Data extracted from Analysys Mason DataHub on 30 June 2020.

34 INDUSTRY PERFORMANCE REPORT 2019

AVERAGE REVENUE PER USER (ARPU)

Blended ARPU for three mobile service providers averaged RM50 per month in 2019, which is a slight increase compared with 2018.

ARPU is resilient despite ongoing price competition between service providers. Service providers strive to grow ARPU and service revenue through price innovation that stimulates data usage and monetises data demand, pushing prepaid-to-postpaid migration or upgrading to premium plan and adding innovative services on top of connectivity (such as OTT, games, e-wallet etc).

AVERAGE BLENDED MOBILE ARPU 2015 – 2019

Source: Industry, MCMC Figure 2.7 Average Blended Mobile ARPU 2015 – 2019

35 Looking specifically at the ARPU for the three main service providers for 2019, Maxis continue to lead with blended monthly ARPU of RM58, followed by Celcom at RM51. Higher ARPU for Maxis and Celcom was contributed by their focus on premium subscribers. As for Digi, its blended ARPU level was the lowest at RM40 per month in the market, largely due to its strong prepaid base and focus strategy on affordable packages.

Based on the above findings, mobile service providers clearly strategised their ARPU differently such as utilising services that are of higher value and maintaining a strong level of customer focus.

POSTPAID ARPU 2015 – 2019 PREPAID ARPU 2015 – 2019

Source: Industry, MCMC Source: Industry, MCMC Figure 2.8 Postpaid ARPU 2015 – 2019 Figure 2.9 Prepaid ARPU 2015 – 2019

36 INDUSTRY PERFORMANCE REPORT 2019

PROFITABILITY: EBIT AND EBITDA MARGINS

In 2019, the telecommunications sector EBITDA2 margin averaged 42% (2018: 37%) and EBIT3 margin averaged 24% (2018: 21%). Margins have improved during this period due to cost optimisation initiatives resulting in reduction of operating costs.

Among the mobile service providers, Digi recorded EBITDA margin as high as 52% followed by Celcom and Maxis 41% and 40% respectively. As for fixed service providers, TIME has the highest EBITDA margin at 43% as compared with TM, which was at 33% in 2019. TIME has been charting revenue growth over the past three years and managed to retain lean operating cost structure, thus its EBITDA margin remained steady.

EBITDA MARGIN 2017 – 2019

Source: Industry, MCMC Figure 2.10 EBITDA Margin 2017 – 2019

In terms of EBIT, TM EBIT margin stood at 11% in 2019 (2018: 3%). In 2018, TM reported lower EBIT Margin due to impairment loss on network assets of almost RM1 billion. Such positive result in 2019 was driven by TM’s ongoing cost optimisation and management initiatives implemented. The initiatives include focusing on simplification and digitalisation of TM’s businesses and internal processes to lower cost of network infrastructure.

EBIT MARGIN 2017 – 2019

Source: Industry, MCMC Figure 2.11 EBIT Margin 2017 – 2019

2 EBITDA refers to Earnings Before Interest, Tax, Depreciation and Amortisation. 3 EBIT refers to Earnings Before Interest and Tax, also known as operating profit. 37 CAPITAL EXPENDITURE (CAPEX)

In 2019, total telecommunications capex was RM4.61 billion. About 70%-80% of the capex was spent on network to improve capacity to support rising data demands. Meanwhile, capex has declined 11.5% in 2019, due to service providers:

RM

RM RM

Rationalising and Squeezing and optimising Preserving capital for reprioritising spending the existing network assets full-scale 5G roll out

CAPEX 2017 – 2019 CAPEX TO REVENUE RATIO (CAPITAL INTENSITY)

Source: Industry, MCMC Source: Industry, MCMC Figure 2.12 Capex 2017 – 2019 Figure 2.13 Capex to Revenue Ratio (Capital Intensity)

38 INDUSTRY PERFORMANCE REPORT 2019

From the total capex, 65% (RM2.98 billion) was from and Australia were the second highest mobile service providers (Celcom, Maxis and Digi). countries with capex to revenue ratio at 29%. These The remaining 35% (RM1.63 billion) was from fixed countries ratio were high as they strengthened their service providers (TM and TIME). Capex was mainly 4G LTE networks in response to fast-growing data for upgrading mobile network and fibre to improve consumption and the rising importance of network network quality and capacity to provide a better quality, as well as to pave way for 5G. customer experience.

In terms of capex to revenue ratio (capital intensity), telecommunications sector spending was 13.2% of revenue for 2019 (2018: 15%), which was below the global average of 17%4. Telecommunications

As shown in Figure 2.14, Philippines Capex telecommunications companies have invested in RM4.61 network infrastructure at a level significantly higher billion 11.5% than the global average in terms of capex to revenue (2018: RM5.21 billion) ratio - spent 36% of their revenue on capex in 2019, which is the highest among the 11 countries.

Other countries such as allocated 28% of their revenue respectively into capex over the same period, while South Korea’s was at 17%. United Kingdom, USA, Malaysia, Japan, and were even lower, with a capex level of less than 15%, below the global average.

CAPEX TO REVENUE RATIO (CAPITAL INTENSITY) 2015 VIS-À-VIS 2019

Source: OMDIA, Industry, MCMC Figure 2.14 Capex to Revenue Ratio (Capital Intensity) 2015 vis-à-vis 2019

4 OMDIA, Communications Provider Revenue & Capex Tracker: 4Q19, April 2020.

39 BROADCASTING SECTOR

The broadcasting sector in 2019 has recorded RM5.88 billion in revenue, a decline of 8.6% compared with RM6.43 billion in 2018. Revenue continues to decline amid weaker traditional (TV and radio) advertising and Pay TV subscription revenue. In 2019, TV and radio advertising revenue declined by 8%, while Pay TV subscription revenue declined by 9%.

BROADCASTING SECTOR REVENUE 2017 – 2019

Note 1. Media Prima excludes print revenue 2. ASTRO revenue adjusted by calendar year 3. Only radio broadcasting revenue is included for Star Media

Source: Industry, MCMC Figure 2.15 Broadcasting Sector Revenue 2017 – 2019

The broadcasting sector remains challenging due to the following:

Broadcasters’ reliance on an advertising- Changing habits Competition from based business model is being and preferences both legal and illegal challenged by changes in content of consumers platforms (legal distribution and consumer consumption. towards digital competition from Advertisers are spending less on media consumption OTT players; illegal traditional media following the changing as compared to competition from trend and allocating their budget traditional media such pirated contents) to digital mediums, thus affecting as TV, print and radio traditional advertising revenue

Broadcasters have diversified their businesses by moving into events and digital initiatives (such as home/ online shopping and digital advertising). These efforts begin to gain traction but revenue is insufficient to cushion the huge decline in their traditional business. In addition, digital initiatives require longer maturity period and incur start-up costs and higher operating costs.

40 INDUSTRY PERFORMANCE REPORT 2019

POSTAL AND COURIER SECTOR

Postal and courier sector recorded revenue of RM2.69 billion in 2019, declined by 3.6% compared with RM2.79 billion in 2018. The sector revenue was lower, mainly impacted by:

Decline in traditional mail volume due to Price competition in courier business following electronic substitution the emergence of start-ups/new players

POSTAL AND COURIER SECTOR REVENUE 2017 – 2019

Note: Revenue adjusted by calendar year

Source: Industry, MCMC Figure 2.16 Postal and Courier Sector Revenue 2017 – 2019

41 ACE MARKET OVERVIEW AND PERFORMANCE

The ACE Market which stands for “Access, Certainty, Investment (MAI) in Thailand. It is viewed as the ideal Efficiency” is an alternative market for small and market for promising and fast growing companies medium sized companies that are at growth stage who are looking to raise capital through public and have business prospects. It replaced the listing exercise. formerly known MESDAQ (Malaysian Exchange of Securities Dealing and Automated Quotation) In 2019, there were 129 companies listed on ACE market in 20095. The ACE Market is very much like Market. From the total, 11 companies or 8.5% are the Growth Enterprise Market (GEM) in Hong Kong, licensees under the CMA. Catalist in Singapore and Market for Alternative

LICENSEES ON ACE MARKET 2019

Licensee Listing Type of Company (ACE Listed) (The company or subsidiary of Date Licences* ACE listed company) NFP (I) & Binasat Communications Bhd 2018 Satellite NOC Sdn Bhd NSP (I) PUC Bhd 2015 Presto Mall Sdn Bhd ASP (C) ManagePay Systems Bhd 2011 MPay Mobile Sdn Bhd ASP (C) NSP (I) & XOX Bhd 2011 XOX Com Sdn Bhd ASP (C) Diversified Gateway Solution Bhd 2007 Diversified Gateway Bhd ASP (C) Privanet Sdn Bhd NFP (I) & Privasia Technology Bhd 2006 Privasat Sdn Bhd NSP (I) MNC Wireless Bhd MNC Wireless Bhd 2005 ASP (C) Moblife.TV Sdn Bhd mTouche Technology Bhd 2005 mTouche International Sdn Bhd ASP (C) N2N Global Solutions Sdn Bhd N2N Connect Bhd 2005 ASP (C) NGN Connection Sdn Bhd Redtone Engineering and Network Services Sdn Bhd NFP (I) & Redtone Telecommunications Sdn Bhd REDtone International Bhd 2004 NSP (I) & Redtone Data Centre Sdn Bhd ASP (C) Redtone Mytel Sdn Bhd Sea Telco Engineering Services Sdn Bhd M3 Technologies () Bhd 2003 M3 Technologies (Asia) Bhd ASP (C)

*ASP – Applications Service Provider; NSP – Network Service Provider; NFP – Network Facilities Provider; I – Individual; C - Class

Source: Bursa Malaysia ACE Market, Industry, MCMC Figure 2.17 Licensees on ACE Market 2019

5 Bursa Malaysia, Annual Report 2018.

42 INDUSTRY PERFORMANCE REPORT 2019

In 2019, market capitalisation for the 11 CMA licensees listed on ACE Market was RM1.33 billion (a growth of 14.7%) with revenue of RM0.93 billion (a growth of 45.3%). Note that, the value for market capitalisation and revenue were higher, partly due to the increased CMA licensees in ACE market to 11 companies (2018: 9).

LICENSEES ON ACE MARKET LICENSEES ON ACE MARKET MARKET CAPITALISATION 2017 – 2019 REVENUE 2017 – 2019

Source: Bloomberg, MCMC Source: Industry, MCMC Figure 2.18 Licensees on ACE Market: Market Capitalisation Figure 2.19 Licensees on ACE Market: Revenue 2017 – 2019 2017 – 2019

43